RBI vs Fed? RBI wins, hands down!
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“We look at the Fed stance but it is not the only thing we look at”- 1. In what might well be termed as a Diwali bonus, though he says it is not, Raghuram Rajan cut repo rates by 50 bps. Industry anticipated a cut of no more than 25 bps. Hence Rajan kind of threw it in the face of the industry who forever complained he was coming in the way of their growth. Thus the banks are forced to cut interest rates. Though
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3. Rajan took aggressive steps to increase the local demands in the market, considering weak commodity prices at global markets. And it would not only slow inflation, it would increase demand and employment too. At present, US is suffering from weak labour market, with unemployment rate over 10 per cent. The contrast between the two countries, a developed nation and a developing nation, clearly speaks about Rajan being a better governor than Janet Yellen.
4. The American markets stumbled a little after Fed announced unchanged rate cut policies. But look at the markets today! The man behind the Banking Revolution 2.0 sure gave a Diwali Bonus a month in advance as both
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5. While Rajan is the man who brought down India’s inflation, today’s rate cuts prove that there is need of more aggressive steps; which goes on to prove that there are undeclared factors which might hinder the growth and increase inflation.
So also, weaker market environment forced the Fed to keep rates unchanged since 2008. While the step saved the economy from a downfall for seven long years, the truth is there is no perfect time for raising rates. Fed’s steps only increase the chances of hidden factors hindering the growth to pop up. Even Yellen said if rates are kept low, it could lead to excessive risks. So what is stopping her? Rajan’s enigma, perhaps!
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